On Sunday, the President of Venezuela, Nicolas Maduro, made an announcement regarding the introduction of oil reserves-backed “petro” for reviving the collapsed economy.
Only a few details about the launch of the currency were shared by the leader. He said that Venezuela will develop a cryptocurrency that is backed by gas, diamond reserves, gold, and oil. Maduro added that the petro would support the nation to advance in areas of financial sovereignty, to move past financial obstructions and to make successful financial transactions.
Opposition leaders unsure about cryptocurrency
Certain cryptocurrency followers were confused and surprised by the announcement of the Venezuelan leader. This type of currency is not traditionally supported by central banks or governments. The irony is that currency restriction in Venezuela in the last few years have triggered a bitcoin craze among the tech-savvy citizens who are looking to evict controls and obtain dollars for making online purchases.
The announcement was derided by the opposition leaders. They said that it still required an approval from the Congress. Some were even doubtful about the new digital currency being launched at all since the country is dealing with a serious financial crisis. Venezuela is currently lacking in fundamental needs such as medicine and food.
The announcement throws light on how the sanctions implemented by President Trump in 2017 have hurt Venezuela’s ability to transact money via global banks.
Lack of credibility
Maduro’s administration does not have a brilliant history in financial policy. In just one month, there has been a 57% depreciation in the bolivar vis-à-vis the dollar owing to uncontrolled money printing and currency restrictions. As a result, the minimum wage per month has dropped to a meager $4.30.
There is very little chance that Maduro’s announcement will bring any sort of relief in the short run as several million Venezuelans are currently struggling with poverty and cannot even afford to eat three meals in a day.
According to opposition leaders and economists, Maduro, who was previously a union leader and bus driver, has carelessly refused to alter Venezuela’s restrictions and curtail the severe economic meltdown.
The leader might be looking to make payments to foreign creditors and bondholders in the cryptocurrency in an attempt to streamline the significant debt burden of the country, say opposition leaders. However, there is a high risk of the plan flopping.